A Marxist/Keynesian critique of Say's Law

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Austroglide Posted: Thu, Apr 23 2009 1:37 PM

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In the recent Say's Law thread, poster Steven Shaw links to Steve Keen's "Nudge Nudge, Wink Wink, Say No More"  - a paper in which Say's Law is determined to be fallacious:

The interesting thing about Mr. Keen's argument seems to me to be how it so quickly falls apart once it is revealed that it depends logically on Marx's theory of profit, which in turn depends upon his labor theory of value.  Moreover, to the untrained eye Mr. Keen's critique of Say's Law appears to be a quite accurate description of economic cause and effect in a capitalist economy.  Indeed, Mr. Keen is reported to be something of a popular figure in Australia.  However, upon closer inspection, his argument readily falls apart.

I think this may go to show, or at least reinforce, the critical importance of the fundamental economic laws.  In this case, namely, those which contribute to value theory in particular, and to profit theory as well. 

The post below is written, on the one hand, for those interested in seeing first hand one type of argument that free market detractors level against Say's Law - in this case an argument based firmly upon the labor and profit theories of Marx, but with a Keynesian conclusion.  On the other hand, the post is written for anyone perhaps somewhat new (or not) to Austrian economics who may be interested in learning something about the importance of the distinctions among different value theories, as well as the distinctions among different profit theories (Not that different theories are discussed; rather, the importance of their accuracy is illustrated).

First, a brief summary of Marx's labor theory of value is made, and subsequently a brief analysis is made of Mr. Keen's argument.  Included also, however, is a discussion of Bohm-Bawerk's refutation of Marx's labor theory of value.  Further, by way of contrast to Marx, a summary of the Misean and Rothbardian conceptions of profit is discussed.  And finally, a discussion of Say's Law vis-'a-vis Austrian profit theory is also included, where it is shown that Say's theory takes account of temporary supply imbalances, and by so doing comports quite well with the Austrian conception of profit.

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Examination of Mr. Keen's argument:

If anyone sees things which should be corrected or added, feel free and please do - I claim no expertise in Austrian economics.  I've taken the time to carefully reconstruct Mr. Keen's contra-Say argument below (however superficially) and to construct a relatively careful response to it (however superficial).  The process was beneficial and instructive to me as someone learning Austrian economics, so I'm posting here in case others might find the result of it to be also.

Based on Steve Keen's critique of Say's Law, I can understand why Mr. Keen's ideas have gained traction in  Australia:  His argument is well articulated and seemingly a very credible description of how capitalism works.  To my reading, however, his argument nonetheless completely fails at a critical point - namely, its reliance on Marx's theory of profit.  Thus if Marx is incorrect regarding the nature and origin of profit, then so too is Mr. Keen, and his critique of Say's Law is revealed to be baseless. 

Briefly, Mr. Keen's argument against Say's Law relies primarily on Marx's theory of profit, which itself originates in Marx's labor theory of value.

In Marx's analysis, all value derives from the labor time necessary for a good to be produced.  Thus, all value derives exclusively from the efforts of workers.  Consequently, profits to the capitalist are nothing less than value seized from workers.  From this view, capitalists hire workers to labor for an agreed upon length of time, the workers produce salable commodities during this period, and the capitalist subsequently pays the workers a wage which is less than the value of the commodities they've produced.

Now, Say's Law describes a free market economy in which general demand deficiencies caused by endogenous phenomena are impossible.  However, Mr. Keen - with Marx's analytics in hand - takes exception to the following:

Say:

Every producer asks for money in exchange for his products, only for the purpose of employing that money again immediately in the purchase of another product; for we do not consume money, and it is not sought after in ordinary cases to conceal it: thus, when a producer desires to exchange his product for money, he may be considered as already asking for the merchandise which he proposes to buy with this money. It is thus that the producers, though they have all of them the air of demanding money for their goods, do in reality demand merchandise for their merchandise. (A Treatise on Political Economy, p. 134; emphasis added by Mr. Keen)

According to Mr. Keen:

Marx conceded that, if the sole motivation of exchange is consumption, then aggregate supply is aggregate demand.

Indeed:

Of the part of the revenue in one branch of production (which produces consumable commodities) which is consumed in the revenue of another branch of production, it can be said that the demand is equal to its own supply (in so far as production is kept in the right proportion). It is the same as if each branch itself consumed that part of its revenue. Here there is only a formal metamorphosis of the commodity: C-M-C' Linen-money-wheat. (Marx 1861: 233)

However, Mr. Keen posits:

As Marx showed far better than did Keynes, the conditions under which Say’s Law is correct are not those of a capitalist economy. 

According to Marx, and Mr. Keen, a second dynamic of commodity and money exchange occurs within capitalist economies, one which Say and his admirers fail to account for:

The circuit C-M-C starts with one commodity, and finishes with another, which falls out of circulation and into consumption. Consumption, the satisfaction of wants, in one word, use-value, is the end and aim. The circuit M-C-M+, on the contrary, commences with money and end with money. Its leading motive, and the goal that attracts it, is therefore mere exchange-value. (Marx 1867:148)

Accordingly, alleges Mr. Keen:

...a capitalist’s supply, if he is successful, is greater than his demand. There is an inherent inequality at the core of capitalist society, and the simple balance of Say’s Law collapses. In its place arises a far more complex vision of the functioning – and potential malfunctioning – of a market economy.
...
In an uncertain world, expectations of what and how much to produce will necessarily be sectorally and in the aggregate incorrect to at least some degree. The prospects for turning a physical surplus into real financial gain will depend on financial conditions and the distribution of income. Euphoric expectations during a boom may lead capitalists to produce too much of everything relative to the future ability of the system to finance their sale at a profit, while excessive debt and depressed expectations during a slump may lead to a self-fulfilling spiral into depression. As Minsky argued, this perspective can be seen as Keynes’s essential argument in the General Theory.

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Critique of the Labor Theory of Value:

Why Mr. Keen is satisfied to argue upon a Marxian foundation - and do so unequivocally and without qualification - is puzzling.  I'm no expert in value theory or the history of its successive formulations, but I thought it widely recognized today that labor theories of value have long ago been discredited and well succeeded by subjective value theory.  Perhaps someone knowledgeable in this area could shed some light.

For instance, in Bohm-Bawerk's 1890 exegesis and refutation of Marx's labor theory of value, Bohm-Bawerk states:

I venture on a field already traversed many a time, and by distinguished writers.  I can scarcely hope then to bring forward much that is new." (Capital and Interest, p. 375)

For a penetrating criticism of the labor theory, see Bohm-Bawerk's chapter on Marx in Capital and Interest.  As for Bohm-Bawerk, he concludes his analysis with this:

If what I have said is true, the socialist Exploitation theory...is not only incorrect, but, in theoretical value, even takes one of the lowest places among interesting theories.  However serious the fallacies we may meet among the representatives of some of the other theories, I scarely think that anywhere else are to be found together so great a number of the worst fallacies - wanton unproved assumption, self-contradiction, and blindness to facts.  The socialists are able critics, but exceedingly weak theorists. (Capital and Interest, p. 390)

Whether Bohm-Bawerk is correct or not is up to the reader to decide.  Notice, however, Bohm-Bawerk readily qualifies his argument.  He admits to providing no final proof and instead acknowledges the possibility that his conclusions are wrong. And this despite these conclusions being supported by the highest degree of intellectual exaction.  By way of contrast, Mr. Keen and Mr. Marx offer no such qualifications. Indeed, as Bohm-Bawerk goes great lengths to point out, Marx's labor theory is extremely flimsy both theoretically and empirically.

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The Austrian Analysis of Profit:

Austrian profit theory rests upon the edifice of subjective value theory.  For and outstanding, though shy of complete, exposition of subjective value theory, see Menger's Principles of Economics.  For outstanding expositions of Austrian profit theory see Mises' Profit and Loss and Rothbard's Man, Economy, and State, pp. 509-556.

Here's Mises on profit (from Profit and Loss) - it's too good to simply paraphrase:

"The consumers' preference for definite articles may he open to condemnation from the point of view of a philosopher's judgment. But judgments of value are necessarily always personal and subjective. The consumer chooses what, as he thinks, satisfies him best. Nobody is called upon to determine what could make another man happier or less unhappy. The popularity of motor cars, television sets and nylon stockings may be criticized from a "higher" point of view. But these are the things that people are asking for. They cast their ballots for those entrepreneurs who offer them this merchandise of the best quality at the cheapest price."
...

"Entrance into the ranks of the entrepreneurs in a market society, not sabotaged by the interference of government or other agencies resorting to violence, is open to everybody. Those who know how to take advantage of any business opportunity cropping up will always find the capital required. For the market is always full of capitalists anxious to find the most promising employment for their funds and in search of the ingenious newcomers, in partnership with whom they could execute the most remunerative projects.

People often failed to realize this inherent feature of capitalism because they did not grasp the meaning and the effects of capital scarcity. The task of the entrepreneur is to select from the multitude of technologically feasible projects those which will satisfy the most urgent of the not yet satisfied needs of the public. Those projects for the execution of which the capital supply does not suffice must not be carried out. The market is always crammed with visionaries who want to float such impracticable and unworkable schemes. It is these dreamers who always complain about the blindness of the capitalists who are too stupid to look after their own interests. Of course, the investors often err in the choice of their investments. But these faults consist precisely in the fact that they preferred an unsuitable project to another that would have satisfied more urgent needs of the buying public."
...

"Profits are never normal. They appear only where there is a maladjustment, a divergence between actual production and production as it should be in order to utilize the available material and mental resources for the best possible satisfaction of the wishes of the public. They are the prize of those who remove this maladjustment; they disappear as soon as the maladjustment is entirely removed. In the imaginary construction of an evenly rotating economy there are no profits. There the sum of the prices of the complementary factors of production, due allowance being made for time preference, coincides with the price of the product.

The greater the preceding maladjustments, the greater the profit earned by their removal. Maladjustments may sometimes be called excessive. But it is inappropriate to apply the epithet "excessive" to profits."
...

"But it is not the capital employed that creates profits and losses. Capital does not "beget profit" as Marx thought. The capital goods as such are dead things that in themselves do not accomplish anything. If they are utilized according to a good idea, profit results. If they are utilized according to a mistaken idea, no profit or losses result. It is the entrepreneurial decision that creates either profit or loss. It is mental acts, the mind of the entrepreneur, from which profits ultimately originate. Profit is a product of the mind, of success in anticipating the future state of the market."
...

"There is no harm in a businessman's endeavors to enrich himself by increasing his profits. The businessman has in his capacity as a businessman only one task: to strive after the highest possible profit. Huge profits are the proof of good service rendered in supplying the consumers. Losses are the proof of blunders committed, of failure to perform satisfactorily the tasks incumbent upon an entrepreneur. The riches of successful entrepreneurs is not the cause of anybody's poverty; it is the consequence of the fact that the consumers are better supplied than they would have been in the absence of the entrepreneur's effort. The penury of millions in the backward countries is not caused by anybody's opulence; it is the correlative of the fact that their country lacks entrepreneurs who have acquired riches. The standard of living of the common man is highest in those countries which have the greatest number of wealthy entrepreneurs. It is to the foremost material interest of everybody that control of the factors of production should be concentrated in the hands of those who know how to utilize them in the most efficient way.
...

The average wage earner thinks that nothing else is needed to keep the social apparatus of production running and to improve and to increase output than the comparatively simple routine work assigned to him. He does not realize that the mere toil and trouble of the routinist is not sufficient. Sedulousness and skill are spent in vain if they are not directed toward the most important goal by the entrepreneur's foresight and are not aided by the capital accumulated by capitalists. The American worker is badly mistaken when he believes that his high standard of living is due to his own excellence. He is neither more industrious nor more skillful than the workers of Western Europe. He owes his superior income to the fact that his country clung to "rugged individualism" much longer than Europe. It was his luck that the United States turned to an anticapitalistic policy as much as forty or fifty years later than Germany. His wages are higher than those of the workers of the rest of the world because the capital equipment per head of the employee is highest in America and because the American entrepreneur was not so much restricted by crippling regimentation as his colleagues in other areas. The comparatively greater prosperity of the United States is an outcome of the fact that the New Deal did not come in 1900 or 1910, but only in 1933.
...

Neither does the average man comprehend that profits are indispensable in order to direct the activities of business into those channels in which they serve him [the average man] best. He looks upon profits as if their only function were to enable the recipients to consume more than he himself does. He fails to realize that their main function is to convey control of the factors of production into the hands of those who best utilize them for his own purposes. He did not, as he thinks, renounce becoming an entrepreneur out of moral scruples. He chose a position with a more modest yield because he lacked the abilities required for entrepreneurship or, in rare cases indeed, because his inclinations prompted him to enter upon another career."

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Austrian Profit Theory and Say's Law:

Briefly, Mises' above analysis appears to comport with Say's Law.  In real terms, at the beginning of the production process, business owners exchange commodities for other commodities (i.e. factors of production) which the entrepreneur believes are currently undervalued.  In this case, in order to acquire the factors of production the business owner must first produce commodities which factor owners will demand.  Goods are exchanged for goods.

According to Say, from an economy-wide point of view, goods are always exchanged for goods of commensurate value, and therefore a general oversupply is impossible. (If, instead, goods of lesser value were accepted in exchange for goods of higher value, then an oversupply of the less valuable goods and an undersupply of the higher value goods would result in all markets across the economy.)

Say:

It is worth while to remark, that a product is no sooner created, than it, from that instant, affords a market for other products to the full extent of its own value. (A Treatise on Political Economy, p. 134)

However, the entrepreneur's case represents an exception to Say's general rule.  For if the entrepreneur is correct in his identification of unmet consumer demands, or in his assessment that currently satisfied consumer demands could be met more efficiently, then the entrepreneur purchases goods which the market has currently undervalued and underpriced.

Rothbard:

The capitalist-entrepreneur buys factors or factor services in the present; his product must be sold in the future. He is always on the alert, then, for discrepancies, for areas where he can earn more than the going rate of interest. Suppose the interest rate is 5 percent; Jones can buy a certain combination of factors for 100 ounces; he believes that he can use this agglomeration to sell a product after two years for 120 ounces. His expected future return is 10 percent per annum. If his expectations are fulfilled, then he will obtain a 10-percent annual return instead of 5 percent. The difference between the general interest rate and his actual return is his money profit (from now on to be called simply “profit,” unless there is a specific distinction between money profit and psychic profit). In this case, his money profit is 10 ounces for two years, or an extra 5 percent per annum.

What gave rise to this realized profit, this ex post profit fulfilling the producer’s ex ante expectations? The fact that the factors of production in this process were underpriced and undercapitalized-underpriced in so far as their unit services were bought, undercapitalized in so far as the factors were bought as wholes. In either case, the general expectations of the market erred by underestimating the future rents (MVPs) of the factors. This particular entrepreneur saw better than his fellows, however,and acted on this insight. He reaped the reward of his superior foresight in the form of a profit. (Man, Economy, and State with Power and Market, pp. 509-510)

But if this were the case simultaneously in markets all across the economy, then Say's Law surely would be powerless to explain such an economy.  However, the exchange of goods of incommensurate value in any particular market is not long-lasting.

Rothbard:

His action, his recognition of the general undervaluation of productive factors, results in the eventual elimination of profits, or rather in the tendency toward their elimination. By extending production in this particular process, he increases the demand for these factors and raises their prices. This result will be accentuated by the entry of competitors into the same area, attracted by the 10-percent rate of return. Not only will the rise in demand raise the prices of the factors, but the increase in output will lower the price of the product. The result will be a tendency for a fall in the rate ofreturn back to the pure interest rate. (Man, Economy, and State with Power and Market, p. 510)

Therefore, oversupply will occur in particular markets at particular times for temporary durations.  This ought not
invalidate Say's Law, however, for Say himself countenanced the likelihood that temporary imbalances in  particular market would indeed occur in a free market economy.

Say:

But it may be asked, if this be so, how does it happen, that there is at times so great a glut of commodities in the market, and so much difficulty in finding a vent for them 1 Why cannot one of these superabundant commodities be exchanged for another? I answer that the glut of a particular commodity arises from its having outrun the total demand for it in one or two ways; either because it has been produced in excessive abundance, or because the production of other commodities has fallen short.

It is because the production of some commodities has declined, that other commodities are superabundant. To use a more hackneyed phrase, people have bought less, because they have made less profit :*and they have made less profit for one or two causes; either they have found difficulties in the employment of their productive means, or these means have themselves been deficient.

It is observable, moreover, that precisely at the same time that one commodity makes a loss, another commodity is making excessive profit.f And, since such profits must operate as a powerful stimulus to the cultivation of that particular kind of products, there must needs be some violent means, or some extraordinary cause, a political or natural convulsion, or the avarice or ignorance of authority, to perpetuate this scarcity on the one hand, and consequent glut on the other. No sooner is the cause of this political disease removed, than the means of production feel a natural impulse towards the vacant channels, the replenishment of which restores activity to all the others. One kind of production would seldom outstrip every other, and its products be disproportionately cheapened, were production left entirely free. (A Treatise on Political Economy, p. 135)

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Conclusion.

But to focus exclusively on the fact of whether Say's Law is valid or invalid is to miss the most important point.  What counts most in all of this is whether the economics, based as they are on fundamental accounts of value and profit, are correct.  Is the Marx/Keynes/Keen explanation of value and profit the more persuasive, along with the economics it necessarily implies; or instead is the Say/Menger/Mises explanation the more persuasive?  I think it's quite clear that the Classical Liberal/Austrian conception of economic cause and effect is the vastly superior.  However, of course, one need judge for oneself.

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liberty student replied on Thu, Apr 23 2009 2:17 PM

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tl:dr

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Bostwick replied on Thu, Apr 23 2009 2:27 PM

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Steven Keen:

Marx conceded that, if the sole motivation of exchange is consumption, then
aggregate supply is aggregate demand:

Of the part of the revenue in one branch of production (which produces
consumable commodities) which is consumed in the revenue of another branch of
production, it can be said that the demand is equal to its own supply (in so far as
production is kept in the right proportion). It is the same as if each branch itself
consumed that part of its revenue. Here there is only a formal metamorphosis of
the commodity: C-M-C' Linen-money-wheat. (Marx 1861: 233)

Marx’s formalism on this ‘part of the revenue’ neatly encapsulates Say’s
perspective on all exchange: a producer offers products in exchange for
money (‘C-M’, ‘Linen-money’) and then employs that money to buy different
products (‘M-C'’, ‘money-wheat’). If the overall circuit C-M-C' (where the
dash in C' indicates commodities different to those in C) were the only one in
existence, then Say’s Law would be true-as Marx puts it, ‘it can be said that the demand is equal to its own supply’. In this circumstance, general gluts could not exist, and disproportionality of demand and supply in different sectors (and also time lags between sale and purchase) would be the explanation for cyclical behaviour.

However, according to Marx C-M-C' is only one of two circuits in
capitalism. The second, socially dominant (though physically smaller) circuit
is ‘M-C-M+’. Agents in this circuit are motivated, not by consumption, but by
the desire to accumulate wealth for its own sake. They do not demand, as Say
put it, ‘merchandise for their merchandise’, but ‘more money for their
money’. The purpose of economic activity in this circuit is not to exchange
one commodity for another, but to exchange less money for more money:

The circuit C-M-C starts with one commodity, and finishes with another, which
falls out of circulation and into consumption. Consumption, the satisfaction of
wants, in one word, use-value, is the end and aim. The circuit M-C-M+, on the
contrary, commences with money and end with money. Its leading motive, and the
goal that attracts it, is therefore mere exchange-value. (Marx 1867:148)

This circuit violates Say’s precepts about the behaviour of producers, justifies
Keynes’s later distinction between aggregate supply and aggregate demand,
and introduces ‘general gluts’ and other macroeconomic phenomena as
potential causes of economic crises in addition to disproportionality

In other words, this guy thinks Say's Law applies to barter economies but once money is introduced everything changes.

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Austroglide replied on Thu, Apr 23 2009 2:51 PM

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JonBostwick:

In other words, this guy thinks Say's Law applies to barter economies but once money is introduced everything changes.

I'd say that's an apt description.   The trick is to demonstrate why he's wrong.

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nirgrahamUK replied on Thu, Apr 23 2009 3:01 PM

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to prove that money is not significant to the analysis when it is not a claim on real goods, simply offer the fella 1million Rothbards (not backed by any commodity) in exchange for the deeds and owener to the good fellows house. money that is not backed by commodities is hardly money at all

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Austroglide replied on Thu, Apr 23 2009 3:03 PM

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nirgrahamUK:

simply offer the fella 1million Rothbards

Rothbards aren't money.

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nirgrahamUK replied on Thu, Apr 23 2009 3:07 PM

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ah, but what is money?

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Austroglide replied on Thu, Apr 23 2009 3:15 PM

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nirgrahamUK:

ah, but what is money?

It's not Rothbards.

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nirgrahamUK replied on Thu, Apr 23 2009 3:22 PM

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why not? how do you know?

im trying to help you not hurt you. this is the answer to why says law is true

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Austroglide replied on Thu, Apr 23 2009 3:29 PM

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nirgrahamUK:

why not? how do you know?

The point is this:

In the example you create above, you posit that Say's Law can easily be demonstrated to be true by exchanging Rothbards for the deed to Mr. Keen's house.  But this wouldn't be an apt demonstration since Rothbards aren't money.  For the demonstration to be even POTENTIALLY apt, some form of real money would have to be used.  However, in this case, the demonstration would fail to be apt because Mr. Keen would readily agree to the trade (and simply continue on in believing that Say's Law is fallacious).

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nirgrahamUK replied on Thu, Apr 23 2009 3:34 PM

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Austroglide:

JonBostwick:

In other words, this guy thinks Say's Law applies to barter economies but once money is introduced everything changes.

I'd say that's an apt description.   The trick is to demonstrate why he's wrong.

.

if money units are just markers that represent claims on real commodities then, adding real commodities (adding money) into the formerly barter economy wont change it so fundamentally that the laws of supply and demand break down.

if money units are markers that dont represent anything then they are irrelevant, as proven by rothbards, so the above does the job.

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Austroglide replied on Thu, Apr 23 2009 3:49 PM

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nirgrahamUK:

if money units are markers that dont represent anything then they are irrelevant, as proven by rothbards, so the above does the job

I absolutely agree with you on the fact of money as mere placeholders for commodities in the real economy.  Question at hand is how to convince Mr. Keen of the same.  You suggest a demonstration whereby we show up to his door, 1 million units of currency in hand, ready to swap for his house.   If the currency we choose to bring with us happens to be dollars, Mr. Keen would likely take the trade in a flash.  If the currency we choose happens to be Rothbards, Mr. Keen would politely excuse himself and close the front door, telling us "Money is only a placeholder for real goods?  Prove it!".  We haven't proven it because Rothbards aren't recognized by Mr. Keen as money.

Because Mr. Keen is a real person with real (albeit incorrect) beliefs, the experiment has to be conducted in reality.  The object, after all, is to convince Mr. Keen that his real life beliefs about free markets and Say's Law are incorrect.  Thus, by necessity, the currency use in the demonstration must be recognizable as money to Mr. Keen.  But this being the case, the demonstration is bound to fail since Mr. Keen will take the trade we offer.

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David Z replied on Thu, Apr 23 2009 3:52 PM

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As for the C-M-C' and M-C-M' arguments, as I've previously written about Marx's General Formulation of Capital at least two objections come immediately to mind:

1. The M in C-M-C may at any time be either M or M’ in the circuit M-C-M, and that as such, these are not independent circuits but rather interlocking parts of a greater whole.
2. What Marx is really describing is an arbitrageur, although painted as a thief and usurer.

In the first instance, Peter does not keep the money he receives any longer than is needed for his own security. He may of course immediately effect the C-M-C by exchanging the money he receives for another commodity item. Or, he may enter into an M-C-M circuit, exchanging the money for a commodity, to which he adds his labor over a period of time, the completed product which he expects to exchanges for M’ in the future. The farmer, for instance, spends money M on the purchase of new seeds, stock and tools with which to work the soil, in hopes of selling them in the future for M’.

Is the lack of transformation (as in the example of the farmer) what riles Marx? If so, this is barely worthy of scorn: where the farmer creates value, the arbitrageur has at the very least prevented the destruction of value, thus allowing its creator to realize value in exchange far greater than he could’ve on his own accord. The “capitalist” function in this instance is, if nothing else, Pareto efficient. One must not lose sight of the fact that the arbitrageur performs a valuable service of allocating scarce resources across an economy. Without the “capitalist” in Marx’s M-C-M circuit, the commodity is sold at a steep discount (if it is in-fact sold at all) and the most urgent need as measured by opportunity cost remains entirely unsatisfied. The problem of “surplus value”, posed by the M-C-M appears only as a result of Marx’s imaginary demarcation.

In the real world, C-M-C and M-C-M, are indistinguishable parts of a complex economy, in which economizing individuals are to some extent, constantly in the midst of performing both roles.  Even Marx’s vulgar capitalist holds and acquires money in order to satisfy some future need to consume.

Or, to put it another way, even the vulgar capitalist, at some time in the past had to provide valuable goods; he had to contribute materially to the economy in order to earn that first chunk of money, which Marx scorns.  What he does with it after that is of no man’s concern but his own.

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nirgrahamUK replied on Thu, Apr 23 2009 4:03 PM

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but in taking the offer of the dollars, he concedes that the dollars serve a purpose for him beyong their 'paperishness', their ability to purchase products, commodities. this is the core of Says analysis, that goods are paid for with goods, and money is just to facilitate this and not an end in itself.

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Austroglide replied on Thu, Apr 23 2009 4:20 PM

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nirgrahamUK:

but in taking the offer of the dollars, he concedes that the dollars serve a purpose for him beyong their 'paperishness', their ability to purchase products, commodities. this is the core of Says analysis, that goods are paid for with goods, and money is just to facilitate this and not an end in itself.

Mr. Keen accepts and offers paper dollars every day in exchange for commodities.  Yet he still believes Say's Law is fallacious.  Showing up to his door to conduct yet one more exchange won't demonstrate to him the sound logic of Say's Law.  From Mr. Keen's perspective, nothing, save for the $1 million amount, is remarkable about this particular exchange - it's merely one in countless many just like it.

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Austroglide replied on Thu, Apr 23 2009 4:23 PM

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david_z:

As for the C-M-C' and M-C-M' arguments, as I've previously written about Marx's General Formulation of Capital at least two objections come immediately to mind:

1. The M in C-M-C may at any time be either M or M’ in the circuit M-C-M, and that as such, these are not independent circuits but rather interlocking parts of a greater whole.
2. What Marx is really describing is an arbitrageur, although painted as a thief and usurer.

Thank you.  I wil respond to this after spending some time with it.

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nirgrahamUK replied on Thu, Apr 23 2009 4:24 PM

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then perhaps:

JonBostwick:

In other words, this guy thinks Say's Law applies to barter economies but once money is introduced everything changes.

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Austroglide replied on Thu, Apr 23 2009 4:34 PM

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nirgrahamUK:

then perhaps:

Austroglide:

In other words, this guy thinks Say's Law applies to barter economies but once money is introduced everything changes.

is not an apt description after all

These are your words, not mine.   What's with the false quote?

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nirgrahamUK replied on Thu, Apr 23 2009 4:37 PM

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my bad, it was JonBostwick, i will edit. but you did say it was apt

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Austroglide replied on Thu, Apr 23 2009 4:42 PM

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nirgrahamUK:

...you did say it was apt

Indeed. What I said WASN'T apt was the demonstration you concocted using Rothbards.

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nirgrahamUK replied on Thu, Apr 23 2009 4:44 PM

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i give up

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Austroglide replied on Thu, Apr 23 2009 6:28 PM

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david_z:

1. The M in C-M-C may at any time be either M or M’ in the circuit M-C-M, and that as such, these are not independent circuits but rather interlocking parts of a greater whole.

This is interesting.  I hadn't thought of this.  I suppose, however, that Mr. Keen would argue that independent or not, the mere existence of the M-C-M circuit negates Say's Law.

david_z:

What Marx is really describing is an arbitrageur, although painted as a thief and usurer.

Indeed.  But Marx doesn't believe he's describing any sort of arbitrage (at least according to Bohm-Bawerk's analysis, which I rely upon exclusively here since I'm no expert in Marxism).

Bohm-Bawerk:

"...[Marx] declares that the surplus value can neither originate in the fact that the capitalist, as buyer, buys commodities regularly under their value, nor in the fact that the capitalist, as seller, sells them regularly over their value.  It cannot therefore originate in the circulation. But neither can it originate outside the circulation.  For 'outside the circulation the owner of the commodity only stands related to his own commodity.  As regards its value the relation is limited to this, that the commodity contains a quantity of the owner's own labour measured by definite social laws.'. (Capital and Interest, p. 371) 

Marx:

Our money owner, who is yet only a capitalist in the grub state, must buy the commodities at their value, must sell them at their value, and yet at the end of the process must draw out more money than he put in.  The bursting of the grub into the butterfly must take place in the sphere of circulation, and not in the sphere of circulation.  These are the conditions of the problem. (Das Kapital, p. 150; Capital and Interest, p. 372)

As Bohm-Bawerk indicates, the origin of the 'surplus value', or profit, in Marx's analysis is the commodity of labor. 

Bohm-Bawerk:

The solution Marx finds in this, that there is one commodity whose use value possesses the peculiar quality of being the source of exchange value. This commodity is the capacity of labour, or Labour Power (Capital and Interest, p. 372).

Thus, seems to me that the entire of Mr. Keen's criticism of Say's Law, constructed as it is upon Marx's twin circuits C-M-C' and M-C-M', comes down to whether or not Marx is correct in his identification of 'labour power' as the source of capitalist profits.

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Jon Irenicus replied on Thu, Apr 23 2009 9:13 PM

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Summarise this in one paragraph, otherwise it's just too TL;DC. As for Marx's belief that "labour power" is the source of profit, Reisman has eviscerated this abject nonsense in his article on the Marxian theory of exploitation. Will Marx ever recover from the total rape? Who knows...

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Jon Irenicus replied on Thu, Apr 23 2009 9:14 PM

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I absolutely agree with you on the fact of money as mere placeholders for commodities in the real economy.  Question at hand is how to convince Mr. Keen of the same.

What does "Mr Keen" think money is, exactly?

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Austroglide replied on Thu, Apr 23 2009 10:10 PM

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Jon Irenicus:

As for Marx's belief that "labour power" is the source of profit, Reisman has eviscerated this abject nonsense in his article on the Marxian theory of exploitation.

Not the point, but good to know.

Jon Irenicus:

Summarise this in one paragraph, otherwise it's just too TL;DC.

I will not.  This is your problem, not mine.  Color crayons and pretty pictures aren't included.  Sorry.

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Austroglide replied on Thu, Apr 23 2009 10:13 PM

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Jon Irenicus:

What does "Mr Keen" think money is, exactly?

All relevant info on Mr. Keen's argument can be found in the OP, and certainly in Mr. Keen's paper which is linked in the OP.  The stipulation, however, is that you have to care to bother yourself.

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Jon Irenicus replied on Thu, Apr 23 2009 10:17 PM

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Thus, seems to me that the entire of Mr. Keen's criticism of Say's Law, constructed as it is upon Marx's twin circuits C-M-C' and M-C-M', comes down to whether or not Marx is correct in his identification of 'labour power' as the source of capitalist profits.

So yes, it is relevant. BTW, learn to summarise stuff for your audience if you want people to take the time to read it. Copy/pasting blocks of text is unlikely to get a substantive response, your dismissive little tirade notwithstanding.

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David Z replied on Thu, Apr 23 2009 10:42 PM

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Austroglide:

david_z:

1. The M in C-M-C may at any time be either M or M’ in the circuit M-C-M, and that as such, these are not independent circuits but rather interlocking parts of a greater whole.

This is interesting.  I hadn't thought of this.  I suppose, however, that Mr. Keen would argue that independent or not, the mere existence of the M-C-M circuit negates Say's Law.

Perhaps, but again, only if you consider M-C-M and C-M-C as independent circuits.  They're not.  First, the stipulation (implied by Marx) in the C-M-C circuit is that the laborer/artisan exchanges a good/service for a sum of money, all of which he then surrenders on the purchase of another good/service.  This is demonstrably false since it is obviously far from a universal rule.  What we see in exchanges, is that although people may spend a great proportion of M immediately, the balance is saved.  They may choose to use this remainder to effect the purchase of another C (thus concluding the circuit) at some time in the future, or instead embark upon the M-C-M circuit.  That some people choose (willfully or ignorantly) to refrain from ever engaging in M-C-M transactions can hardly be a sound criticism of Say's Law, that ultimately it is one's production Isupply) of marketable goods and services which permits him to purchase (demand) something else.

Austroglide:

Thus, seems to me that the entire of Mr. Keen's criticism of Say's Law, constructed as it is upon Marx's twin circuits C-M-C' and M-C-M', comes down to whether or not Marx is correct in his identification of 'labour power' as the source of capitalist profits.

That may be the case.  I think there are a lot of reasons to doubt te argument that 'labour power' is te source of capitalist profits (at least in any reasonably free economy).  Responding to Rodbertus, in Capital and Interest, Bohm-Bawerk writes:

...The perfectly just proposition that the labourer should receive the entire value of his product may be understood to mean, either that the labourer should now receive the entire present value of his product, or should receive the entire future value of his product in the future. But Rodbertus and the socialists expound it as if it meant that the labourer should now receive the entire future value of his product, and they speak as if this were quite self-evident, and indeed the only possible explanation of the proposition.  (emphasis added)

...present goods have a different value in the present from future goods.

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Austroglide replied on Thu, Apr 23 2009 10:47 PM

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Jon Irenicus:

BTW, learn to summarise stuff for your audience if you want people to take the time to read it. Copy/pasting blocks of text is unlikely to get a subtantive response, your dismissive little tirade notwithstanding.

Point taken.  I apologize.  I will edit the OP to include a summary.

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Jon Irenicus replied on Thu, Apr 23 2009 10:53 PM

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Good idea. BTW, Reisman's article addresses the question of the origin of profits in the latter section. I'm not sure what you mean if it's not the question he answers in the article.

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mash replied on Fri, Apr 24 2009 7:49 AM

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Normal 0 false false false EN-US X-NONE X-NONE MicrosoftInternetExplorer4

As this is my first post I will quickly introduce myself: I am about to begin my journey into economics, so my knowledge on theory and the various schools is in no way developed. Atm I identify myself as being Post Keynesian (PK), but in saying that I also agree with Austrian criticisms of government. I see quite a bit of overlap between the Austrians and Post Keynesians, in particular in regards to uncertainty and time as espoused by Shackle (I consider to be an PK) and Lachmann. In saying that, my depth of knowledge on the Austrian School is extremely elementary, the most I can say is that I am aware of the school, parts of their methodology, several key figures, spontaneous order and the Austrian business cycle theory. I frequently visit mises.org and the forums, and I have been intending to join for several weeks now, but have been kept busy by uni and work.

In regards to Say's Law, I have been going through Chapter XV, The general Theory and SAY’S LAW WERE (ARE) THE CRITICS RIGHT. I haven't been too impressed with the latter to be honest.

Now onto Steve keen.

Austroglide:

In the recent Say's Law thread, poster Steven Shaw links to Steve Keen's "Nudge Nudge, Wink Wink, Say No More"  - a paper in which Say's Law is determined to be fallacious:

The interesting thing about Mr. Keen's argument seems to me to be how it so quickly falls apart once it is revealed that it depends logically on Marx's theory of profit, which in turn depends upon his labor theory of value.  Moreover, to the untrained eye Mr. Keen's critique of Say's Law appears to be a quite accurate description of economic cause and effect in a capitalist economy.  Indeed, Mr. Keen is reported to be something of a popular figure in Australia.  However, upon closer inspection, his argument readily falls apart.

From what I have read of Keen's work he has a unique interpretation of Marx, in that he distinguishes between two of Marx's theories of values. The first being Marx Labour Axiom from which The labour theory of value is derived, and the second being Marx's Commodity Axioms. Steve Keen firmly rejects the former, that is the LTV but accepts the latter. On the LTV you can find Keen's criticisms in his book, Debunking Economics. Throughout the book he consistently rejects the LTV and that aspect of Marx, and finally dedicates an entire chapter to why Marxism is irrelevant but why most of Marx is not. I'm unsure whether he distinguishes between the two theories of value in this book, but he certainly distinguishes between them in Normal 0 false false false EN-US X-NONE X-NONE Use-value, exchange value and the demise of Marx’s labor theory of value (Keen, 1993. I believe you can find this on his website www.debtdeflation.com/blogs/). That paper should be of particular interest as Keen suggests that the LTV isn’t even logically coherent using Marx’s methodology. A conclusion reached from the paper is that labour is a source of value but so is every other input in the production process, which makes the LTV irrelevant. On the Commodity Axiom, keen accepts and sees them as incongruous with the LTV. It is from the commodity axiom that C-M-C and M-C-M’ are derived, as well the foundation for his critic of Say’s Law.

Regarding the popularity of Steve Keen in Australia, he has certainty experienced a boom in popularity of recent, but he is largely ignored by the mainstream economists in the media and academia. When he has been acknowledge, it has usually resulted in outright attacks against him, for suggesting that the central bank was a factor in causing this crisis, that Australia is not immune and not special and won’t be able to wear the coming storm.

Austroglide:

I think this may go to show, or at least reinforce, the critical importance of the fundamental economic laws.  In this case, namely, those which contribute to value theory in particular, and to profit theory as well. 

The post below is written, on the one hand, for those interested in seeing first hand one type of argument that free market detractors level against Say's Law - in this case an argument based firmly upon the labor and profit theories of Marx, but with a Keynesian conclusion.  On the other hand, the post is written for anyone perhaps somewhat new (or not) to Austrian economics who may be interested in learning something about the importance of the distinctions among different value theories, as well as the distinctions among different profit theories (Not that different theories are discussed; rather, the importance of their accuracy is demonstrated).

Steve keen isn’t a Keynesian, but a Post-Keynesian (he also identifies with elements of the Austrian school, mainly Schumpeter). As I have previously mentioned they have a slight overlap with the Austrian School regarding uncertainty, time etc but they also stress effective demand (hence there disagreement with Say’s Law), they believe that Keynesian and New Keynesian are incompatible with Keynes and outright reject Mainstream economics (neo-classical, New Keynesian). You’ll find that a lot of their papers are directed entirely at the logical inconsistency of the Keynesian Schools. Other foundations for the school include aspects of Marxism, Sraffa, Schumpeter, Institutionalists, systems and cybernetic theory (I believe Hayek might overlap here as well).

As to Say’s Law, I will admit I do not have the knowledge to properly argue this point I have only recently began to look at it in any great depth, in saying that my current opinion is that it doesn’t hold in our economic system, but my opinion is certainly not concrete and most likely subject to change. Steve Keen’s rejection of Say’s Law stems from his belief that money is a store of value, that there is a distinction between saving and investment and that there exists in our society a class which wishes to draw more out of the system than they put in, as represented by M-C-M`. This existence of this class and this behaviour in the economy invalidates Say’s suggestion that producers solely produce to consume and that ‘money performs but a momentary function’.

Unfortunately I do not have the time to respond to the rest of the post, and I admit that I have only read the first part before Austroglide dives in and begins his rejoinder. I wanted to clear up any misunderstanding that may have come about from the assertion that Keen accepts the LTV and that the LTV forms the basis of his attack on Say’s Law.

Edit: I apologise for the weird text that has appeared on the post. I can only see it when I view the post, not when I try to edit it. I copied my post over from word, so perhaps that has something to do with it. again apologies, if a moderator wants to clean them up, then by all means go ahead. I would greatly appreciate if someone could tell me what I can do to get rid of them.

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David Z replied on Fri, Apr 24 2009 8:19 AM

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mash:

I copied my post over from word, so perhaps that has something to do with it. again apologies, if a moderator wants to clean them up, then by all means go ahead. I would greatly appreciate if someone could tell me what I can do to get rid of them.

If you paste into the HTML editor instead of the Rich Text Editor, that might take care of it, but then you would lose any font formatting (e.g., italics, underlines, etc.) that you had made.

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David Z replied on Fri, Apr 24 2009 8:26 AM

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mash:

A conclusion reached from the paper is that labour is a source of value but so is every other input in the production process, which makes the LTV irrelevant.

Ultimately, it is forecasts and projections about what the market will ultimately value, which induces entrepreneurs, laborers, etc., to undertake the effort and disutility of labor.  The perception that the product of one's labor will in the future be valued by others is what causes labor.  It is not the labor which causes value, but rather the belief that one's labor will ultimately be valued, which causes labor. 

In a free market, the production costs for a good, A, will tend to approximate the market prices for A, because anyone unable to produce A profitably at less than the market prices will direct his labor to some other more gainful endeavor.

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Austroglide replied on Fri, Apr 24 2009 12:56 PM

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david_z:

Perhaps, but again, only if you consider M-C-M and C-M-C as independent circuits.  They're not.  First, the stipulation (implied by Marx) in the C-M-C circuit is that the laborer/artisan exchanges a good/service for a sum of money, all of which he then surrenders on the purchase of another good/service.  This is demonstrably false since it is obviously far from a universal rule.  What we see in exchanges, is that although people may spend a great proportion of M immediately, the balance is saved...

I agree with this.

(1) Does Marx view the twin circuits as independent?  This is not clear in Mr. Keen's presentation.

(2) A distinction:  Marx assumes subsistence wages in his analysis, so for him there would be no inconsistency in assuming zero net savings in the C-M-C' circuit.  This would clear Marx.

However, as your answer implies, it doesn't clear Mr. Keen, for obviously subsistence wages can't realistically be countenanced in any analysis of today's economies.  I agree with you on this.

This point aside, as far as Mr. Keen is concerned, the locus of the fatal flaw in Say's Law is the M-C-M' circuit.   To Mr. Keen's understanding, Say's Law easily accommodates the C-M-C' circuit, but cannot accommodate M-C-M'.   Thus, the key to his argument is the unpacking of his reasoning regarding M-C-M' and the economic dynamics he (and Marx) associate with it.

Mr. Keen:

...whereas exchange in the C-M-C' sphere has its own guarantee of overall balance, no such guarantee exists for exchange done within the M-CM+ circuit. (Keen, p. 207)

This [M-C-M'] circuit violates Say’s precepts about the behaviour of producers, justifies Keynes’s later distinction between aggregate supply and aggregate  demand, and introduces ‘general gluts’ and other macroeconomic phenomena as potential causes of economic crises in addition to disproportionality. (Ibid, p. 201)

Indeed, Mr. Keen attributes many an economic malady to the M-C-M' circuit:

With the presence of a circuit dominated by the desire to accumulate, the simple harmony of commodity production and consumption (vulnerable only to disproportionality) gives way to the potential for instability arising from speculative overproduction, excessive and insufficient expectations of profit, maldistribution of income, excessive debt, and the whole panoply of macroeconomic issues that believers in Say’s Law cannot comprehend. Say’s ‘Law’ therefore, is not a recondite insight into the nature of a market economy, but evidence of a basic failure to comprehend capitalism. (Ibid, p. 202)

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Austroglide replied on Fri, Apr 24 2009 1:35 PM

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mash:

As this is my first post I will quickly introduce myself

Welcome.  I respect your open minded approach.

mash:

From what I have read of Keen's work he has a unique interpretation of Marx, in that he distinguishes between two of Marx's theories of values. The first being Marx Labour Axiom from which The labour theory of value is derived, and the second being Marx's Commodity Axioms. Steve Keen firmly rejects the former, that is the LTV but accepts the latter.

Do you happen to have any links to Mr. Keen's ideas on this commodity-based value theory?  I think it's necessary to understand Mr. Keen's value theory before addressing any of the points you raise in your post. 

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Bostwick replied on Fri, Apr 24 2009 4:06 PM

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Austroglide:

JonBostwick:

In other words, this guy thinks Say's Law applies to barter economies but once money is introduced everything changes.

I'd say that's an apt description.   The trick is to demonstrate why he's wrong.

 

He's wrong becuase adding money doesn't actually change anything. Profit and interest are not monetary phenomenons, they exist with in barter economies as well.

Money simply helps humans to calculate profit, it does not create it. No more than the invention of measuring stick created distance.

Individuals act to replace a less desireable situtation for a more desireable situtation. They act when they expect to get more than they gave up, it doesn't matter if they are substance farming, bartering, or using money.

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mash replied on Fri, Apr 24 2009 9:23 PM

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Austroglide:

Do you happen to have any links to Mr. Keen's ideas on this commodity-based value theory?  I think it's necessary to understand Mr. Keen's value theory before addressing any of the points you raise in your post. 

A lot of his papers can be found at his blog

In regards to his ideas on the commodity based value theory, I would suggest reading:

Use value, exchange value and the demise of Marx;s labor theory of value

A Marx for Post Keynesians (unpublished)

The first link details the two set of axioms and explains how the LTV is not compatible with Marx's labour axioms. As i said earlier his interpretation of Marx is quite unique, and he demonstrates that there is no logical foundation for the LTV from Marx.

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Austroglide replied on Sat, Apr 25 2009 3:55 PM

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I've read these two papers, and here is my response:

==================================================================================

Mr. Keen proposes the notion that capitalism can best be understood using a dialectic methodology and theorizing upon a set of seven axioms taken from Marx, what he calls Marx's "Commodity Axioms".  ("A Marx for Post Keynesians,"  pp. 3-6)

Central to Mr. Keen's economics, thus his criticism of Say's Law, are two tenets:

1) "surplus value" (in other words, capitalist profits) results from capitalists purchasing inputs, the value of the final output of which will be higher than the initial factor costs
2) capitalism has two main circuits: (C-M-C) where the objective is the consumption of "use values", and (M-C-M) where the objective is the production of surplus value

Unfortunately Mr. Keen's argument is a hot, hot mess. 

At root, the problem lies in Mr. Keen's inability to satisfactorily account for the origin of surplus value.  To be sure, he quite ably asserts, again and again, what he believes its origins to be.  But, ultimately, the project comes to naught because no reasonable proof of origin ever is submitted. 

Notice:

Mr. Keen's value theory posits that commodity prices are determined by costs of production. (Ibid, p. 13)

Notice also, however:

Mr. Keen's understanding of the M-C-M' circuit requires quite the opposite:

...money is used to buy inputs to production...which are then combined in production to produce new commodities of greater value than the inputs, which are sold for more money than the inputs cost. (Ibid, p. 7)

According to Mr. Keen's analysis of M-C-M', capitalist profits result from a process of arbitrage.  For the arbitrage to work, the selling price must be greater than the production costs.  However, this contradicts Mr. Keen's supposition that commodity prices are determined by costs of production; for if this were actually the case, the capitalist's selling price would be equal to his production costs. 

==================================================================================

Surely this can't be it. Something still must be missing from this picture.  Indeed, something is still missing.  However, its inclusion will not clarify matters one bit, for this is precisely where Mr. Keen's "analysis" depends centrally on "the appeal to assertion". 

In short, this is where the concepts of "exchange value" and "use value" enter the picture.  Capitalists, it is supposed, purchase commodities at prices which reflect their exchange values, but in the process of production their use values are brought to bear, resulting in a final commodity of higher value than the combined factor costs.  This is the hypothesized origin of surplus value and capitalist profits. 

But Mr. Keen fails to provide a convincing explanation as to why this is a credible representation or accurate description of the production process. His singular accomplishment here is merely to assert the relationships among exchange value, use value, and market prices.  Indeed, no explicit argument is ever formulated to prove this proposition.  Instead, Mr. Keen, following Mr. Marx, implicitly and silently grants its truth based upon the mere fact of capitalist profits.

And here's a bit of completely non-shocking news:

The attempt to achieve an acceptable reconciliation has been a major, if not the major, intellectual focus of Marxian economics. See Desai 1988 for a recent survey; for a recent attempt to "solve" the transformation problem, see Mohun 1994. [!] (Ibid, p. 5).

In other words, no Marxist can provide a convincing account of surplus value. 

In other words, Mr. Keen's argument is fatally flawed.  

==================================================================================

But if Mr. Keen's explanation for capitalist profit is unsound, then so too is the M-C-M' conception.  Not to mention Mr. Keen's central use of M-C-M' to supposedly debunk Say's Law. 

Indeed, the argument forwarded in the OP regarding Mr. Keen's profit theory still applies.  Ideally, both the value and profit theories would concord, but when here they don't, the value theory makes no difference - for it's the path of capitalist profit in the M-C-M' circuit that Mr. Keen hopes convincingly to trace in disproving Say.

==================================================================================

Finally, the tone used here is perhaps a bit flippant.  The argument, however, is not.  If an hypothesized cause and effect cannot be proven and instead must be asserted, the explanatory truth of the hypothesis cannot be granted.  It is reckless to proceed with an economic analysis built upon such a faulty foundation, and the results of such an analysis should be regarded as useless.

One would be well served to keep a long distance from the sway of Mr. Keen's theories.

==================================================================================

EDIT:  I am mistaken just above when I argue the following: 

But if Mr. Keen's explanation for capitalist profit is unsound, then so too is the M-C-M' conception.  Not to mention Mr. Keen's central use of M-C-M' to supposedly debunk Say's Law. 

The M-C-M' conception, removed from its original Marxian context, and therefore absent the Marxian conceptions of use-value and exchange-value, can indeed describe the process which brings about capitalist profits. 

The Austrians, like Mr. Keen, posit the origin of profits to be entrepreneurial arbitrage, after all.  Of course, the Austrian theory of entrepreneurial arbitrage is far different from that of Mr. Keen.  What's more, the Austrians conceive of this arbitrage as an economic good - indeed, an economic necessity - at the heart of a growing free market economy.  The reasons why are examined in the latter sections of the OP, "The Austrian Analysis of Profit" in particular. 

By contrast, Mr. Keen (incorrectly) conceives of the arbitrage as containing the germ of many an economic ill, as well as the key to demonstrating the fallacy at the root of Say's analysis.  The problem with Mr. Keen's analysis is that it builds upon the Marxian constructs of exchange-value and use-value - and therefore conceptually is burdened with the impossible task of logically developing an irrefutable connection between exchange-value and use-value on the one hand, and how these cause market prices and capitalist profits on the other.  Mr. Keen fails in this, and indeed apparently so too have generations of Marxists.  Ultimately, then, Mr. Keen is unable to provide a reasonable account for capitalist profit.  Without such an account, his economics are catastrophically lacking.

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SteveKeen replied on Sat, Apr 25 2009 5:01 PM

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Greetings,

I wouldn't ordinarily engage in a debate on here, but since a major premise of your case is that my critique of Say's Law relies upon Marx's "Labour theory of value", and is therefore false, I felt impelled to point out to you that my very first published academic paper was entitled Use-value, exchange-value, and the demise of Marx’s Labour Theory of Value (Journal of the History of Economic Thought, 15 (1), Spring, 107-121).

In that paper I showed that the labour theory of value was intellectually inconsistent with Marx's avowed method of dialectics (which, by the way, is also part of Hayek's method--though he like Marx applied it badly at crucial junctures [See Chris Sciabarra's Marx, Hayek and Utopia on that point]]. In brief, the "Labour theory of value" is false on the basis of Marx's own logic, and it has never formed part of my intellectual foundation. Properly applied, Marx's foundational logic argues that all inputs to production are potential sources of surplus value, and all the arithmetic of the "Labour theory of value" is nonsense from first principles.

Regrettably I have had as little luck in convincing committed Marxists of this as I will apparently have in convincing committed Austrians of the falsity of Say's Law.

It is also possible, please, for someone who has a flaw in part of his analysis to be right in another. The very proposition that because I used Marx's excellent argument against Say's Law, the critique must therefore be false because it quotes Marx, is a sign of the painful ideological divide that has made economics far more a set of competing religions than a candidate for science.

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Austroglide replied on Sat, Apr 25 2009 5:39 PM

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SteveKeen:

It is also possible, please, for someone who has a flaw in part of his analysis to be right in another. The very proposition that because I used Marx's excellent argument against Say's Law, the critique must therefore be false because it quotes Marx, is a sign of the painful ideological divide that has made economics far more a set of competing religions than a candidate for science.

Greetings,

I will address this specifically later, if this remains your wish. 

For now, however, notice in my post immediately above that I have corrected my analysis to accommodate your cost of production theory of value, and therefore it is the more germane argument to discuss.